by John Kmiecik | December 17, 2012 8:21 am
The holidays mean many different things to people. Many consider it a time to be with family and loved ones, and others like it for the parties and celebrations. But if you are a shopper, you might like it for all the deals that come about this time of year.
Of course, even traders like deals — this trade idea might be one of the best of the holiday season.
The trade: Buy the January 62.5 calls for $1.35 or less.
The strategy: The long call is an option strategy that is generally used for a bullish outlook on a stock. The trade can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is theoretically unlimited because HD can continue to rise, and the maximum loss is $1.35 or whatever was paid if HD finishes below $62.50 at January expiration. Breakeven is $63.85 based on a cost of $1.35 at expiration.
The rationale: This trade idea is pretty straightforward and simple. Not much has changed with the company’s fundamentals recently. Many analysts rate this stock as a “buy” and the stock has performed well over the past year. It has moved from about $40 to where it is currently trading.
Click to Enlarge This past week was rough on HD stock as it pulled back and lost value almost every day. But now it looks like a perfect opportunity to play a bullish strategy because of where it has declined to; an upward sloping trendline that can act as support. This trendline has moved the stock higher on four other occasions and should do the same on the fifth.
A bullish sign would be if HD trades above Friday’s high which was $62.42.
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.
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